Date: 20080623
Docket: T-1677-07
Citation: 2008 FC 793
Ottawa, Ontario, June 23,
2008
PRESENT: The Honourable Mr. Justice Zinn
BETWEEN:
ROBERT
CROCIONE
Applicant
and
THE
MINISTER OF NATIONAL REVENUE
Respondent
REASONS FOR JUDGMENT AND JUDGMENT
[1]
On February 8, 2002, Mr. Crocione’s conscience got the better of him and
he disclosed to Canada Revenue Agency that he had failed to report his income
and GST obligations for the five taxation years 1997 to 2001. He sought relief
under the Voluntary Disclosures Program.
[2]
The reason why this matter is before this Court is largely, if not
entirely, due to the failure of the official to whom Mr. Crocione spoke to
register and process the call as a voluntary disclosure. Had that been done,
no doubt the usual process would have been followed, resulting in an exchange
of correspondence between these parties as to the conditions required for the
disclosure to be accepted as voluntary and establishing a timeframe for the
filing of the delinquent returns.
[3]
Because the usual process was not followed it appears to the Court that Mr.
Crocione failed to properly expedite the filing of his delinquent returns and,
in fact, he did not file his delinquent returns for another three years.
Further, because the conversation was not properly recorded, the Agency
initially took the position when the returns were filed in 2005 that there had
not been any voluntary disclosure by Mr. Crocione.
[4]
Ultimately, and after an application to this Court, the Agency was
convinced otherwise and it accepts now that a voluntary disclosure was made by
Mr. Crocione on February 8, 2002. As a result, the Agency waived the penalties
associated with the delinquent returns for the five taxation years 1997 through
2001, inclusive. At issue in this application is the decision of the Agency
not to include as a part of that voluntary disclosure Mr. Crocione’s returns
for 2002 through 2004.
[5]
Section 220 (3.1) of the Income Tax Act, R.S.C. 1985, c. 1 (5th
Supp.) and section 281.1 of the Excise Tax Act, R.S.C. 1985, c. E-15,
give the Minister of National Revenue the discretion to grant relief against
the operation of certain sections of the Acts. Specifically, the Minister is
authorized to waive or cancel some or all of the penalties or interest
otherwise payable. The Minister's discretionary powers are largely exercised
through the Voluntary Disclosures Program (VDP).
[6]
The terms and conditions of the VDP in place at the date of Mr.
Crocione’s disclosure are contained in Information Circular 00-1 dated June 12,
2000. The document states that the purpose of the VDP is to promote voluntary
compliance with the accounting and payment of duty and tax and to encourage
taxpayers to come forward and correct deficiencies to comply with their legal
obligations.
[7]
Those who make valid voluntary disclosures for the periods under consideration
are required to pay the tax and interest owing, but the Agency may waive or
cancel penalties on those returns.
[8]
Four conditions must be met for the voluntary disclosure to be valid: it
must be voluntary, it must be complete, it must involve a monetary penalty and
it must include information that is one year or more overdue. The first two of
those pre-conditions are involved in this application and accordingly, I set
out the relevant portions of the Circular:
The disclosure must be voluntary.
The client has to initiate the voluntary disclosure. A disclosure may not
qualify as a voluntary disclosure under the above policy if it is found to have
been made with the knowledge of an audit, investigation, or other enforcement
action that has been initiated by the CCRA, or a related administration, such
as other federal and provincial departments.
…
The disclosing client is expected
to provide full and accurate reporting of all previously inaccurate,
incomplete, or unreported information. While the information provided in a
disclosure must be substantially complete, a disclosure will not be
disqualified simply because it contains minor errors or omissions. However, if
a disclosure is found to contain material errors or omissions, the disclosure
will not qualify as a voluntary disclosure, with the result that the disclosed
information may be processes, and interest and penalties can be applied to the
entire amount.
[9]
The Circular also sets out how a taxpayer may make a voluntary
disclosure. It provides as follows:
A person who
wants to make a voluntary disclosure should contact the CCRA in person or in
writing, provide the details of the disclosure, and show the above four
conditions have been met. The person may make an interim submission. The final
and complete submission must be filed within a period of time specified by the
CCRA (normally 90 days from the date of the initial disclosure).
[10]
Mr. Crocione provided an affidavit in which he attests that at the time
he initiated the voluntary disclosure the officer to whom he spoke understood
“what an enormous undertaking it was to sort through 30 odd shoe boxes and 3
garbage bags full of receipts along with tracking down lost receipts and
replacement bills that had to be submitted and that the submission could not be
done in the short length of time allotted". The Applicant attests that the
officer said that “he would make a note on the account and that I must file all
taxes together including the year filed in and that those years would also fall
under Voluntary Disclosure".
[11]
There are two aspects of this affidavit evidence that are of note.
First, the Applicant appears to have had an understanding of the length of time
normally allotted in which he was expected to file the returns, i.e. 90 days.
Second, while the officer informed him that he was required to bring his
filings up-to-date, there was no mention made of permitting him a number of
years to effect the filings and, as he states, he was told that he was required
to file these past returns “together”. These aspects of Mr. Crocione’s
affidavit are notable in that his returns were filed almost 1,200 days after
the disclosure - not 90 days - and they were not filed together.
[12]
Specifically, Mr. Crocione filed no income tax or GST returns with the
Agency until mid 2005, more than three years following the date of his
voluntary disclosure. On June 20, 2005, he filed his 2002 and 2003 returns and
on August 23, 2005, he filed his returns for 1997 through 2001, inclusive.
[13]
When submitting his returns for 2002 and 2003 he did so with a cover
letter that stated in relevant part: “This disclosure is initiated with P.J.
Flora in 2002 under voluntary disclosure all penalty and interest waivers....
remainder to follow once accountant is done with them”.
[14]
As previously noted, the Applicant’s voluntary disclosure was not properly
recorded by the Agency and when he initially filed these returns he was
assessed interest and penalty. Mr. Crocione commenced in action and with the
benefit of disclosure under the Access to Information Act, R.S.C. 1985, c. A-1, was able to convince the Agency that he had
made a disclosure to Mr. Flora, an officer of the Agency, in 2002.
Accordingly, in 2007 the Agency reviewed his case and accepted that the
disclosure for his returns for the period prior to 2002 were covered by the
VDP, but “given the extraordinary length of time between your initial
disclosure and the date your T1 returns were actually filed, your correspondence
of June 20, 2005 [submitting the returns] would be considered to be a second,
separate disclosure of taxation years subsequent to the initial disclosure.
Based on the facts of your situation, a disclosure relating to the 2002 - 2004
taxation years would not be accepted, as CRA began taking enforcement actions
against these years in 2004". The Agency also noted that at the time Mr.
Crocione made his initial disclosure, the returns for 2002-2004 were not yet
due. An internal appeal by Mr. Crocione was unsuccessful.
[15]
Although a number of grounds of relief were set out in his application,
it became apparent at the hearing that Mr. Crocione was asking this Court to
review and set aside the decision of the Agency denying him a waiver of
penalties with respect to his 2002-2004 tax and GST returns. He argues that
the decision of the Agency was unreasonable in that the officer representing
the Agency, Mr. P. J. Flora, had informed him when he made his voluntary
disclosure that he was obliged to bring his returns up-to-date and therefore
these later years should also have been covered by the voluntary disclosure he
made.
[16]
The decision of the Agency that is challenged is reviewable on the
standard of reasonableness as described recently by the Supreme Court in Dunsmuir
v. New Brunswick, 2008 SCC 9.
[17]
Mr. Crocione submits that had the officer recorded the disclosure
properly the enforcement actions taken in 2004 would not have occurred and the
filing of his returns in 2005
would have been accepted as falling
under the VDP. There is no evidence to support that position. Had the
disclosure been properly recorded, as noted above, there would most likely have
been steps taken to ensure that the delinquent returns were filed well before
2005. Mr. Crocione, having heard nothing from the Agency between the
disclosure date in 2002 and its compliance requests in 2004 appears to have acted
at a very leisurely pace in organizing his returns. He knew that a relatively
short time was provided in the Circular for compliance and rather than move
expeditiously to place his affairs in order, he chose to continue burying his
head in the sand concerning his responsibilities to the taxation authorities for
the years 2002, 2003 and 2004 until they sought him out.
[18]
In my view, the decision of the Agency in refusing to consider the returns
filed for 2002, 2003 and 2004 as part of the initial voluntary disclosure was
reasonable because:
1. They
were not due when the initial disclosure was made in 2002;
2. There is no evidence that these returns could not have been
filed on time as Mr. Crocione and his accountant worked to organize his returns
for 1997 to 2001; and
3. Enforcement action had been commenced by the Agency prior to
the filing of the 2002-2004 returns.
[19]
Accordingly, this application is dismissed. Costs are fixed at
$1,000.00.
JUDGMENT
THIS COURT ORDERS AND
ADJUDGES that
this application for judicial review is dismissed
with costs fixed at $1,000.00.
“Russel W. Zinn”
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